The Reasons for Russia Opening the Door to Cryptocurrency

Jafar224

Liquidity Issues

However, the cost of closing banks is high. These procedures have so far cost the Deposit Insurance Agency (DIA) $5 billion. Additionally, the central bank must be cautious in disposing of assets to avoid the currency liquidity risk generated by closing banks.

Local banks rely on bank liquidity, and a shortage of long-term funding for a single industry can affect social unrest. The central government wants to avoid such turmoil.

For example, Tatfondbank in Tatarstan was investigated in December last year, and protesters called on the central government to allow local employers to pay overdue wages. The wage issue may also be caused by other reasons not directly related to the efficiency of the banking industry. But Russian business culture is very personalized, especially in this region, where business owners and bank managers are often friends. This close relationship means that the banking industry will influence how companies operate.

The relationships between local businesses, banks, and regional regulators are the root of corruption. The central bank wants to at least reduce corruption, even if it cannot eliminate it. The most common crimes found by the central bank in these closed banks are lending to companies with no actual business activities, providing fake loans to individuals, and fraud involving securities. However, when investigative units begin to investigate these banks, the owners often flee. This leaves a gap in the bank's balance sheet, and the DIA must compensate depositors to cover this gap.

Combating Fraud

The current credit system is opaque, making it difficult for central authorities to identify the individuals involved in the regional banking system. This allows small banks to operate more or less separately, but closing banks is not enough to limit fraud and mitigate the impact on the Russian economy. Regulatory authorities must find a way to address the root of the problem.

One solution is to use new technology to allow the central government to simultaneously identify individuals involved in banking activities. This is why the Russian government has a more positive stance on accepting cryptocurrencies.

The use of digital currencies cannot incentivize the elite of these financial industries; instead, they are interested in the underlying technology platform. Cryptocurrencies are not issued by the central government like traditional printed banknotes; they are created in the digital world. The central government's biggest concern about cryptocurrencies is anonymous transactions that facilitate money laundering.

Blockchain

Bitcoin does not exist in a file or on a server; its transaction records are stored on a blockchain. It has three main features that can improve the efficiency of the financial and other industries. First, it does not have a central database and server that hackers can target. The blockchain is distributed across multiple computers that carry data. Second, network participants can view Bitcoin transactions in real-time. Third, it is encrypted.

Like other technology applications, blockchain allows many users to adopt and adapt it. This includes the financial industry, the central government, and businesses that can create their blockchain versions or use existing Bitcoin platforms.

In addition to tracking users, the benefits of using blockchain include faster processing, lower processing costs for central agencies, and increased security once there is no central attack point. These benefits are very appealing to the Russian financial system. However, many details need to be worked out.

Expectations

It is currently unclear whether Russia will accept existing Bitcoin blockchain platforms to support the entire banking industry, establish new laws to regulate it, or use the Bitcoin platform until banks develop their systems or approve the use of cryptocurrencies to better understand how blockchain technology can help the Russian financial industry. But at least for now, the central authorities have significantly changed their opposition, and financial industry elites have realized the benefits of implementing blockchain technology between banks.

They hope to use this technology to reduce fraud and corruption and reduce the costs to the central government.

Isha000

It's worth looking into each method to understand.

Kapil334

Hopefully, every country can accept it.

Ritu13

Technology also needs to be improved.

Yamini003

Security is the most important.